EXHIBIT 13
INTERNATIONAL
Strong sales growth was realized in our Mexican subsidiary primarily due to
another successful Christmas season. Profits also increased substantially,
although they declined as a percentage of sales due to margin pressure. New
sales and marketing programs are being implemented in order to retain and grow
our sales base in this emerging market.
Canadian sales increased as did export sales outside of North America. Our sales
division in the Far East developed new packaging and product formulations to
appeal to local taste preferences. These new items, along with certain of our
existing products, have been introduced in various test markets in the Pacific
Rim. We are encouraged by the acceptance of our products in these markets to
date.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
(in thousands except per share,
percentage and ratio figures)
NET SALES
Per Share
89... $17.02
90... $18.45
91... $19.73
92... $23.30
93... $24.64
NET EARNINGS
Per Share
89... $1.92
90... $2.14
91... $2.42
92... $3.04
93... $3.36
FINANCIAL REVIEW
This financial review discusses the company's financial condition, results of
operations, liquidity and capital resources. This discussion should be read in
conjunction with the Consolidated Financial Statements and related footnotes
beginning on pages 8 and 12, respectively.
FINANCIAL CONDITION
Our financial condition remained strong in 1993, bolstered by another year of
record profits. Net earnings rose from $32,032 in 1992 to $35,442 in 1993.
Shareholders' equity increased by 16.9% from $181,704 in 1992 to $212,343 in
1993, due principally to the addition of these earnings, less cash dividends of
$3,769. Cash dividends have been paid by the company for fifty-one consecutive
years. Shareholders also received a 3% stock dividend in 1993, the twenty-ninth
consecutive year one has been distributed.
Capital expenditures were a record $27,992, primarily reflecting the purchase of
our Chicago facility which had previously been leased, completion of the
Covington plant expansion commenced in 1992, and several other projects. In
October we acquired the Junior Mints, Charleston Chew, Sugar Daddy and Sugar
Babies brands, along with the facility in which they are produced. This
acquisition was the largest in the history of the company.
These significant investments were financed by a combination of cash and debt
which is reflected in the following ratios: current ratio declined from 5.9:1 to
2.2:1; quick ratio declined from 4.5:1 to 1.5:1; current liabilities to net
worth increased from 12.4% to 24.0% and debt to equity increased from 4.3% to
23.6%. Despite the increased leverage incurred in 1993, the company retains a
conservative financial position and sufficient capital for other corporate
purposes.
RESULTS OF OPERATIONS
1993 vs. 1992
Net sales increased in 1993 to $259,593, a record level for the seventeenth
consecutive year and 6% over 1992 sales of $245,424. Sales remained at the
highest level in the third quarter, due to successful Halloween and Back to
School promotions.
Other factors contributing to sales growth during the year were the continued
success of our traditional product lines, favorable results with seasonal lines
and the line extensions, as well as growth in our Mexican and Canadian
subsidiaries.
Comparing the quarterly sales in 1993 to those of 1992, increases were seen in
each of the first three quarters, while the fourth quarter declined by 3%.
Excluding the brands acquired in October the decrease would have been 10%. This
decrease is largely due to general softness in the candy industry, the timing of
some large customer Halloween shipments between the third and fourth quarters
relative to the prior year and the effects of consolidation in the warehouse
club class of trade.
Cost of goods sold, as a percentage of sales, was consistent with 1992 at 51.6%
versus 51.8%. Raw material prices remained stable throughout the year and
productivity improvements continued to
5
SHAREHOLDERS' EQUITY
Per Share
89... $10.40
90... $12.33
91... $14.50
92... $17.25
93... $20.16
NET EARNINGS
As a % of Sales
89... 11.3
90... 11.6
91... 12.3
92... 13.1
93... 13.7
mitigate modest changes in the cost of other factors of production. Gross
margin grew by 6% to $125,615 because of increased sales and as a percentage of
sales it remained constant at 48.4% versus 48.2% in 1992.
Operating expenses, comprised of marketing, selling, physical distribution,
general and administrative expenses and goodwill amortization, declined
slightly as a percentage of sales to 27.8% from 28.7% in the prior year. This
favorable result demonstrates the effect of management's "hands-on" involvement
in the operation of the business and the implementation of effective expense
control programs to keep costs in check.
The effective tax rate was comparable to the 1992 rate at 38.6% versus 38.3% and
other income, consisting primarily of interest and dividend income, remained
essentially even with the prior year as the decrease in our short term
investment portfolio, to partially finance the acquisition, did not occur until
later in the year.
Consolidated earnings rose 10.6% to $35,442, a record high for the twelfth
consecutive year.
1992 vs. 1991
1992 represented the sixteenth year of record sales achievement. Sales of
$245,424 were up 18.1% over 1991 sales of $207,875. Double digit gains were
realized in each quarter.
The third quarter back to school and pre-Halloween sales periods, historically
our largest, again surpassed levels attained in previous years. However, the
largest sales increase on both a percentage and absolute basis was seen in the
fourth quarter, as tight inventory management at the retail level caused
seasonal orders to be carried over into October and due to the fact that
our Mexican subsidiary experienced a strong Christmas season.
Sales increases stemmed from merchandising efforts directed toward the fastest
growing classes of trade, continued strength in our Child's Play assortment
and successful line extensions such as Blue Razz Berry Blow Pops and seasonal
packs.
Cost of goods sold, as a percentage of sales, was in line with the prior year at
51.8% versus 51.6% in 1991. Both direct and indirect costs were comparable to
the prior year as a percent of sales. Continued weakness in the cosmetic economy
and the absence of significant increases in the cost of any major raw materials
or packaging components contributed to this stability. Correspondingly, gross
margin, as a percentage of sales, remained essentially even at 48.2% in 1992
compared with 48.4% in 1991.
Operating expenses, as a percentage of sales, remained comparable with the prior
year and 28.7% of sales. Tight control of operating expenses is an ongoing
program within the company.
The effective tax rate of 38.3% declined slightly from the 1991 level of 32.9%
due to lower foreign taxes offset by foreign tax credits and increased tax free
investment income. Other income rose by $1,050 due to increased interest and
dividend income.
In 1991, the company adopted two new Statements of Financial Accounting
Standards (SFAS) issued by the Financial Accounting Standards Board. SFAS No.
109, "Accounting for Income Taxes" principally requires companies to adopt the
liability
6
method of computing deferred taxes, thereby recomputing existing tax
liabilities at current rates. This change had a favorable impact of $869.
Also in 1991, the Company adopted SFAS No. 106, "Employers" Accounting for
Postretirement Benefits other than Pensions whereby the accrual method is
utilized to record the anticipated expenses of each retiree's benefits ratably
over his/her working career. This method accelerates the recognition of expense
versus the ""pay as you go'' method which deferred such recognition until the
expenses were actually paid. This change had an unfavorable impact of $1,907,
net of future tax benefits.
Consolidated net earnings after the cumulative effect of these accounting
changes rose 25.6% to a new company record of $32,032 or $3.04 per share in 1992
from the previous record of $25,495 or $2.42 per share for 1991. Prior to the
cumulative effect of accounting changes the increase was 20.7%.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities decreased $2,108 to $33,363 in 1993 from
$35,471 in 1992 and $36,826 in 1991. Higher profits and depreciation and
amortization and accrued liabilities in 1993 were offset by increased accounts
receivable, inventories and prepaids.
Cash flows from investing activities in 1993 reflect the acquisition of
Cambridge Brands along with net investment sales which were used toward its
financing. Increased capital expenditures were principally due to the purchase
of our Chicago plant and the Charms expansion.
Cash flows from financing activities include $92,000 of interest bearing debt
incurred during 1993, $50,000 of which was paid off prior to year end. The net
inflow of funds was utilized in the purchase of Cambridge Brands and our Chicago
plant and enabled us to maintain a solid financial position with cash and
marketable securities of $56,203.
Cash dividends were declared and paid in 1993 for the fifty-first consecutive
year. Dividends were increased by 28% to $.36 per share during 1993.
Our successful operating results and financial conservatism are expressed in the
following financial statements.
NET SALES
Millions of dollars
89... $179
90... $194
91... $206
92... $245
93... $250
NET EARNINGS
Millions of dollars
89... $20.2
90... $22.6
91... $25.5
92... $32.0
93... $35.4
GROSS MARGIN
Millions of dollars
89... $85
90... $91
91... $101
92... $118
93... $126
SHAREHOLDERS'
EQUITY
Millions of dollars
89 $110
90 $130
91 $153
92 $182
93 $212
7
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS
(in thousands except per share data)
For the year ended December 31,
------------------------------------------
1993 1992 1991
--------- --------- ---------
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $259,593 $245,424 $207,875
Cost of goods sold. . . . . . . . . . . . . . . . . . . . 133,978 127,123 107,280
--------- --------- ---------
Gross margin. . . . . . . . . . . . . . . . . . . . . . 125,615 118,301 100,595
--------- --------- ---------
Operating expenses:
Marketing, selling and advertising. . . . . . . . . . . 40,096 38,958 32,392
Distribution and warehousing . . . . . . . . . . . . . 17,655 16,959 14,867
General and administrative. . . . . . . . . . . . . . . 12,837 13,186 10,837
Amortization of the excess of cost
over acquired net tangible assets . . . . . . . . . . 1,510 1,265 1,264
--------- --------- ---------
72,098 70,368 59,360
--------- --------- ---------
Earnings from operations. . . . . . . . . . . . . . . . . 53,517 47,933 41,235
Other income, net (Note 8). . . . . . . . . . . . . . . . 4,193 3,989 2,939
--------- --------- ---------
Earnings before income taxes. . . . . . . . . . . . . . . 57,710 51,922 44,174
Provision for income taxes (Notes 1 and 4). . . . . . . . 22,268 19,890 17,641
--------- --------- ---------
Earnings before cumulative effect
of accounting changes. . . . . . . . . . . . . . . . . . 35,442 32,032 26,533
Cumulative effects of accounting
changes - income (expense):
Income taxes (Note 1). . . . . . . . . . . . . . . - - 869
Postretirement health care and life
insurance benefits, less income
tax effect (Notes 1 and 7). . . . . . . . . . . . - - (1,907)
--------- --------- ---------
Net earnings. . . . . . . . . . . . . . . . . . . . . . . 35,442 32,032 25,495
Retained earnings at beginning of year. . . . . . . . . . 90,285 83,507 74,173
--------- --------- ---------
125,727 115,539 99,668
--------- --------- ---------
Deduct (Note 5):
Cash dividends ($.36, $.28 and $.24 per share). . . . . 3,769 2,947 2,492
Stock dividends . . . . . . . . . . . . . . . . . . . . 25,311 22,307 13,669
--------- --------- ---------
29,080 25,254 16,161
--------- --------- ---------
Retained earnings at end of year. . . . . . . . . . . . . $ 96,647 $ 90,285 $ 83,507
--------- --------- ---------
--------- --------- ---------
Earnings per common share:
Earnings before cumulative effect of
accounting changes. . . . . . . . . . . . . . . . $3.36 $3.04 $2.52
Cumulative effect of accounting changes. . . . . . - - (.10)
--------- --------- ---------
Net earnings per common share . . . . . . . . . . . . . . $3.36 $3.04 $2.42
--------- --------- ---------
--------- --------- ---------
Average common and class B common shares
outstanding (Note 5) . . . . . . . . . . . . . . . . . . 10,534 10,534 10,534
--------- --------- ---------
--------- --------- ---------
<FN>
* Based on average shares outstanding adjusted for stock dividends.
(The accompanying notes are an integral part of these statements.)
8
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
December 31,
ASSETS 1993 1992
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents (Notes 1 and 10). . . . . . . . . . . . . . $ 1,986 $ 995
Investments (Notes 1 and 10). . . . . . . . . . . . . . . . . . . . . 54,217 87,947
Accounts receivable, less allowances of $2,075 and $1,219 . . . . . . 20,656 12,889
Inventories (Note 1):
Finished goods and work in process. . . . . . . . . . . . . . . . . 17,186 14,823
Raw materials and supplies. . . . . . . . . . . . . . . . . . . . . 12,108 10,022
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,667 4,544
Deferred income taxes (Notes 1 and 4) . . . . . . . . . . . . . . . . 2,094 1,992
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 111,914 133,212
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 1):
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,231 231
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,347 4,861
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . 107,685 75,091
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . 10 4,841
---------- ----------
137,273 85,024
Less - Accumulated depreciation and
amortization. . . . . . . . . . . . . . . . . . . . . . . . . 50,574 44,767
---------- ----------
86,699 40,257
---------- ----------
OTHER ASSETS:
Excess of cost over acquired net tangible assets, net of accumulated
amortization of $7,260 and $5,750 (Notes 1 and 2) . . . . . . . . . 101,375 45,195
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,952 5,806
---------- ----------
105,327 51,001
---------- ----------
$303,940 $224,470
---------- ----------
---------- ----------
(The accompanying notes are an integral part of these statements.)
9
(in thousands except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
1993 1992
---------- ----------
CURRENT LIABILITIES:
Notes payable to banks (Notes 2, 6 and 10) . . . . . . . . . . . . . $ 22,601 $ 253
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 6,259 4,674
Dividends payable. . . . . . . . . . . . . . . . . . . . . . . . . . 1,026 791
Accrued liabilities (Note 3) . . . . . . . . . . . . . . . . . . . . 17,919 13,661
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 3,057 3,119
---------- ----------
Total current liabilities 50,862 22,498
---------- ----------
NONCURRENT LIABILITIES:
Deferred income taxes (Notes 1 and 4). . . . . . . . . . . . . . . . 6,364 5,986
Postretirement health care and life insurance
benefits (Notes 1 and 7) . . . . . . . . . . . . . . . . . . . . . . 4,498 3,976
Industrial Development Bonds (Notes 6 and 10). . . . . . . . . . . . 7,500 7,500
Term notes payable (Note 6 and 10) . . . . . . . . . . . . . . . . . 20,000 -
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . 2,373 2,806
---------- ----------
Total noncurrent liabilities 40,735 20,268
---------- ----------
SHAREHOLDERS' EQUITY (Notes 1 and 5):
Common stock, $.69-4/9 par value -
25,000 shares authorized -
7,069 and 6,834, respectively, issued . . . . . . . . . . . . . . 4,909 4,746
Class B common stock, $.69-4/9 par value -
10,000 shares authorized -
3,465 and 3,395, respectively, issued . . . . . . . . . . . . . . 2,406 2,357
Capital in excess of par value . . . . . . . . . . . . . . . . . . . 111,108 86,162
Retained earnings, per accompanying statement. . . . . . . . . . . . 96,647 90,285
Foreign currency translation adjustment account (Note 1) . . . . . . (2,727) (1,846)
---------- ----------
212,343 181,704
---------- ----------
COMMITMENTS (Note 9). . . . . . . . . . . . . . . . . . . . . . . . . . - -
---------- ----------
$303,940 $224,470
---------- ----------
---------- ----------
The accompanying notes are an integral part of these statements.
10
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the year ended December 31,
1993 1992 1991
-------- -------- --------
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . . . $35,442 $32,032 $25,495
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . 8,814 6,071 5,202
Translation loss . . . . . . . . . . . . . . . . - 124 171
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . (7,941) 113 3,152
Inventories. . . . . . . . . . . . . . . . . . (2,727) (3,443) 1,457
Prepaid expenses and other assets. . . . . . . (2,827) (724) 125
Accounts payable and accrued liabilities . . . 3,179 2,964 (1,664)
Income taxes payable and deferred. . . . . . . 214 (3,536) (1,697)
Postretirement health care and life
insurance benefits . . . . . . . . . . . . . . 522 450 3,526
Other long-term liabilities . . . . . . . . . . (432) 1,420 59
Other . . . . . . . . . . . . . . . . . . . . . (881) - -
--------- --------- ---------
Net cash provided by operating activities . . . . . . . 33,363 35,471 35,826
--------- --------- ---------
Cash flows from investing activities:
Acquisition of Cambridge Brands . . . . . . . . . . . . (81,317) - -
Capital expenditures. . . . . . . . . . . . . . . . . . (27,992) (10,956) (3,984)
Investment purchases. . . . . . . . . . . . . . . . . . (22,854) (86,357) (68,399)
Investment sales. . . . . . . . . . . . . . . . . . . . 61,096 52,752 41,017
--------- --------- ---------
Net cash used in investing activities . . . . . . . . . (71,067) (44,562) (31,366)
--------- --------- ---------
Cash flows from financing activities:
Issuances of industrial development bonds and
notes payable . . . . . . . . . . . . . . . . . . 92,000 7,500 -
Repayments of notes payable . . . . . . . . . . . . . . (50,000) - -
Dividends paid in cash. . . . . . . . . . . . . . . . . (3,687) (2,965) (2,489)
Other, net. . . . . . . . . . . . . . . . . . . . . . . 382 152 (797)
--------- --------- ---------
Net cash provided by (used in) financing activities . . 38,695 4,687 (3,286
--------- --------- ---------
Increase (decrease) in cash and cash equivalents. . . . . 991 (4,403) 1,174
Cash and cash equivalents at beginning of year. . . . . . 995 5,398 4,224
--------- --------- ---------
Cash and cash equivalents at end of year. . . . . . . . . $ 1,986 $ 995 $ 5,398
--------- --------- ---------
--------- --------- ---------
Supplemental cash flow information:
Income taxes paid . . . . . . . . . . . . . . . . . . . $22,111 $23,733 $16,887
--------- --------- ---------
--------- --------- ---------
Interest paid . . . . . . . . . . . . . . . . . . . . . $ 653 $ 116 $ 88
--------- --------- ---------
--------- --------- ---------
(The accompanying notes are an integral part of these statements.)
11
TOOTSIE ROLL INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share data)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of Tootsie Roll
Industries, Inc. and its wholly-owned subsidiaries (the company), all of
which are engaged in the manufacture and sale of candy products. All
significant intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS:
The company considers temporary cash investments with a maturity of three
months or less to be cash equivalents.
INVESTMENTS:
Investments are carried at cost which approximates market and consist of
various marketable securities that have maturities of less than one year.
INVENTORIES:
Inventories are stated at cost, not in excess of market. The cost of
domestic inventories ($26,500 and $21,546 at December 31, 1993 and 1992,
respectively) has been determined by the last-in, first-out (LIFO) method.
The excess of current cost over LIFO cost of inventories approximates $4,316
and $4,301 at December 31, 1993 and 1992, respectively. The cost of foreign
inventories ($2,794 and $3,299 at December 31, 1993 and 1992, respectively)
has been determined by the first-in, first-out (FIFO) method.
The company executes futures contracts to hedge price risk related to
certain future purchases of product ingredients. Changes in market value of
such futures contracts are included in the measurement of the cost of these
ingredients.
PROPERTY, PLANT AND EQUIPMENT:
Depreciation is computed for financial reporting purposes by use of both
the straight-line and accelerated methods, whereas for income tax purposes
the company uses accelerated methods on all properties. Amortization is
computed for financial reporting and income tax purposes by use of the
straight-line method.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS:
Effective January 1, 1991, the company changed its method of accounting
for postretirement health care and life insurance benefits to the accrual
method, as a result of adopting Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions." The cumulative effect of this accounting change was to decrease
net earnings by $1,907 (net of income taxes of $1,144) or $.18 per share as
of January 1, 1991. The effect of this change on 1991 operations is a
decrease in net earnings before the cumulative effect of accounting changes
of approximately $250 or $.02 per share.
INCOME TAXES:
Effective January 1, 1991, the company changed its method of accounting
for income taxes, as a result of adopting SFAS No. 109, "Accounting for
Income Taxes." This statement requires, among other things, a change from
the deferral to the liability method of computing deferred income taxes. The
cumulative effect of this change on 1991 net earnings, excluding the
cumulative effect upon adoption, was not material. The company elected not
to restate prior years.
EXCESS OF COST OVER ACQUIRED NET TANGIBLE ASSETS:
The excess of cost over the acquired net tangible assets of operating
companies is amortized on a straight-line basis over a 40 year period.
FOREIGN CURRENCY TRANSLATION:
During 1992 and 1991 management classified Mexico as a hyper-inflationary
economy, as defined by SFAS No. 52, "Foreign Currency Translation". Under
this classification, the dollar is used as the functional currency, and
translation gains and losses are included in the determination of earnings.
Translation losses of $124 and $171 related to the company's Mexican
operations were charged to expense in 1992 and 1991, respectively.
Effective January 1, 1993 management determined that the Mexican economy
is no longer hyper-inflationary. Accordingly, the local currency is used as
the functional currency and the net effect of translating the Mexican
operation's financial statements is reported in a separate component of
shareholders' equity.
RECLASSIFICATIONS:
Certain prior year balances and amounts have been reclassified in order to
conform to the current year presentation. Such reclassifications had no
effect on net income or retained earnings as previously reported.
NOTE 2 - ACQUISITION:
On October 15, 1993, the company purchased certain tangible and intangible
assets of a candy manufacturer (Cambridge Brands) for approximately $81,300.
Funds for the acquisition were provided from $9,300 of the company's own
funds and $72,000 in bank borrowings (Note 6). The acquisition has been
accounted for as a purchase and the net assets and the results of operations
and cash flows of Cambridge Brands have been included in the company's
consolidated financial statements from October 15, 1993.
The following unaudited pro forma information shows the results of the
company's operations as though the purchase of Cambridge Brands had been
consummated as of the beginning of each year:
1993 1992
-------- --------
Net sales $306,584 $303,576
Net earnings 36,592 32,763
Net earnings per common share 3.47 3.11
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchase actually
been made at the beginning of periods presented or of future operations.
NOTE 3 - ACCRUED LIABILITIES:
Accrued liabilities are comprised of the following:
December 31,
------------------------
1993 1992
-------- --------
Compensation and employee benefits . $ 5,989 $ 5,134
Commissions. . . . . . . . . . . . . 856 850
Advertising and promotions . . . . . 4,413 2,353
Workmen's compensation . . . . . . . 973 1,067
Other . . . . . . . . . . . . . . . 5,688 4,257
-------- --------
$17,919 $13,661
-------- --------
-------- --------
NOTE 4 - INCOME TAXES:
The domestic and foreign components of pretax income are as follows:
1993 1992 1991
------- ------- -------
Domestic . . . . . . . . . . . . . . . $56,159 $48,450 $40,423
Foreign . . . . . . . . . . . . . . . 1,551 3,472 3,751
------- ------- -------
$57,710 $51,922 $44,174
------- ------- -------
------- ------- -------
12
The provision for income taxes is comprised of the following:
1993 1992 1991
------- ------- -------
Current:
Federal. . . . . . . . . . . . . . . $19,052 $17,820 $14,230
Foreign . . . . . . . . . . . . . . 534 1,073 1,343
State. . . . . . . . . . . . . . . . 2,406 2,469 2,312
------- ------- -------
21,992 21,362 17,885
------- ------- -------
Deferred:
Federal . . . . . . . . . . . . . . 514 (1,318) (586)
Foreign . . . . . . . . . . . . . . (281) (25) 411
State . . . . . . . . . . . . . . . 43 (129) (69)
------- ------- -------
276 (1,472) (244)
------- ------- -------
$22,268 $19,890 $17,641
------- ------- -------
------- ------- -------
Deferred income taxes are comprised of the following:
December 31,
------------------
1993 1992
------- -------
Workers' compensation. . . . . . . . . $ 331 $ 364
Reserve for returns. . . . . . . . . . 445 295
Reserve for uncollectible
accounts. . . . . . . . . . . . . . . 230 257
Other accrued expenses . . . . . . . . 1,705 1,099
VEBA funding . . . . . . . . . . . . . (526) (433)
Other, net . . . . . . . . . . . . . . (91) 410
------- -------
Net current deferred income
tax asset . . . . . . . . . . . . . . $2,094 $1,992
------- -------
------- -------
December 31,
------------------
1993 1992
------- -------
Depreciation . . . . . . . . . . . . . $6,878 $7,298
Post employment benefits . . . . . . . (1,536) (1,353)
Deductible goodwill. . . . . . . . . . 1,342 -
Deferred compensation. . . . . . . . . (473) (699)
DISC commissions . . . . . . . . . . . 724 768
Other, net . . . . . . . . . . . . . . (571) (28)
------- -------
Net long-term deferred income
tax liability . . . . . . . . . . . . $6,364 $5,986
------- -------
------- -------
The effective income tax rate differs from the statutory rate as follows:
1993 1992 1991
------- ------- -------
U.S. statutory rate. . . . . . . . . . 35.0% 34.0% 34.0%
State income taxes, net . . . . . . . 2.8 3.0 3.4
Amortization of excess of
cost over acquired net
tangible assets . . . . . . . . . . . 0.7 0.8 1.0
Other, net . . . . . . . . . . . . . . 0.1 0.5 1.5
------- ------- -------
Effective income tax rate. . . . . . . 38.6% 38.3% 39.9%
------- ------- -------
------- ------- -------
The company has not provided for U.S. federal or foreign withholding taxes on
$6,015 of foreign subsidiaries' undistributed earnings as of December 31, 1993
because such earnings are considered to be permanently reinvested. When excess
cash has accumulated in the company's foreign subsidiaries and it is
advantageous for tax or foreign exchange reasons, subsidiary earnings may be
remitted, and income taxes are provided on such amounts. It is not practicable
to determine the amount of income taxes that would be payable upon remittance of
the undistributed earnings.
NOTE 5 - SHARE CAPITAL AND CAPITAL IN EXCESS OF PAR VALUE:
Common Stock Class B Common Stock Capital in
------------------ --------------------- excess of
Shares Amount Shares Amount par value
--------- -------- -------- -------- ---------
(000's) (000's)
Balance at January 1, 1991 . . . . 6,287 $4,366 3,358 $2,332 $ 50,820
Issuance of 3% stock dividend. . . 189 132 98 68 13,380
Conversion of Class B common
shares to common shares . . . . . 78 54 (78) (54) -
-------- -------- -------- -------- --------
Balance at December 31, 1991 . . . 6,554 4,552 3,378 2,346 64,200
Issuance of 3% stock dividend. . . 197 136 100 69 21,962
Conversion of Class B common
shares to common shares . . . . . 83 58 (83) (58) -
-------- -------- -------- -------- --------
Balance at December 31, 1992 6,834 4,746 3,395 2,357 86,162
Issuance of 3% stock dividend. . . 204 142 101 70 24,946
Conversion of Class B common
shares to common shares . . . . . 31 21 (31) (21) -
-------- -------- -------- -------- --------
Balance at December 31, 1993 . . . 7,069 $4,909 3,465 $2,406 $111,108
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
The Class B Common Stock has essentially the same rights as Common Stock,
except that each share of Class B Common Stock has ten votes per share
(compared to one vote per share of Common Stock), is not traded on any
exchange, is restricted as to transfer and is convertible on a share-for-
share basis, at any time and at no cost to the holders, into shares of Common
Stock which are traded on the New York Stock Exchange.
Average shares outstanding and all per share amounts included in the
financial statements and notes thereto have been adjusted retroactively to
reflect the three percent stock dividend distributed in 1993.
NOTE 6 - NOTES PAYABLE AND INDUSTRIAL DEVELOPMENT BONDS:
In October 1993, the company executed notes payable with three banks in the
aggregate amount of $72,000 to provide funds for the acquisition of Cambridge
Brands (Note 2). As of December 31, 1993 $22,000 was outstanding at fixed
(3.64%) and variable interest rates based upon the London Interbank Offered
Rates (LIBOR) plus 13 basis points with a composite interest rate of 3.62%.
The outstanding principal balance is due in 1994.
Additionally, the company entered into two 3-year term notes aggregating
$20,000 the proceeds of which were used to purchase the company's Chicago
manufacturing facility and headquarters. These term notes bear interest
payable monthly at 3.55% and mature entirely in 1996.
At December 31, 1993, the company had outstanding a three year interest rate
swap agreement with a notional amount of $20,000. Under the agreement, the
company exchanged a fixed rate of 4.24% for a variable rate adjusted monthly
based upon LIBOR (3.33% at December 31, 1993). The company anticipates the
counterparty to the swap agreement (a large financial institution) will fully
perform on its obligations.
During 1992, the company entered into an industrial development bond
agreement with the City of Covington, Tennessee. The bond proceeds of $7.5
million are being used to finance the expansion of the Company's existing
facilities. Interest is payable at various times during the year based upon
the interest calculation option (fixed, variable or floating) selected by the
company. As of December 31, 1993 and 1992, interest was calculated under the
floating option
13
(3.4% and 2.9%, respectively) which requires monthly payments of interest.
Principal on the bonds is due in its entirety in the year 2027.
At December 31, 1993 and 1992, unexpended bond proceeds of $1,061 and $5,573
were restricted for use on the capital expenditure projects discussed above.
These funds, which are included as other assets in the accompanying
consolidated balance sheet, are invested in short-term securities until
expended.
In connection with the issuance of the bonds, the company entered into a
letter of credit agreement with a bank for the amount of principal
outstanding plus 48 days accrued interest. The letter of credit, which
expires in March 1996, carries an annual fee of 32 1/2 basis points on the
outstanding principal amount of the bonds.
NOTE 7 - EMPLOYEE BENEFIT PLANS:
PENSION PLANS:
The company sponsors defined contribution pension plans covering certain
nonunion employees with over one year of credited service. The company's
policy is to fund pension costs accrued based on compensation levels. Total
pension expense for 1993, 1992 and 1991 approximated $1,202, $1,075 and $867,
respectively. The company also maintains certain profit sharing and savings-
investment plans. Company contributions in 1993, 1992 and 1991 to these
plans were $321, $291, and $263, respectively.
The company also contributes to multi-employer defined benefit pension
plans for its union employees. Such contributions aggregated $407, $474 and
$510 in 1993, 1992 and 1991, respectively. The relative position of each
employer associated with the multi-employer plans with respect to the
actuarial present value of benefits and net plan assets is not determinable
by the company.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFIT PLANS:
The company provides certain postretirement health care and life insurance
benefits for corporate office and management employees. As discussed in Note
1, the company adopted the accrual method of accounting for these benefits
effective January 1, 1991. Employees become eligible for these benefits if
they meet minimum age and service requirements and if they agree to
contribute a portion of the cost. The company has the right to modify and
terminate these benefits and increase future participant contributions. The
Company does not fund postretirement health care and life insurance benefits
in advance of payments for benefit claims.
The accrual for the accumulated postretirement benefit obligation at December
31, 1993 and 1992 consists of the following:
December 31,
----------------
1993 1992
------ ------
Retirees. . . . . . . . . . . . . . $1,285 $1,354
Active employees. . . . . . . . . . 3,213 2,622
------ ------
$4,498 $3,976
------ ------
Net periodic postretirement benefit cost for 1993, 1992 and 1991 included
the following components:
1993 1992 1991
------ ------ ------
Service cost - benefits attributed
to service during the period. . . . $241 $246 $220
Interest cost on the accumulated
postretirement benefit obligation . 259 288 255
------ ------ ------
Net periodic postretirement benefit
cost. . . . . . . . . . . . . . . $500 $534 $475
------ ------ ------
------ ------ ------
For measurement purposes, a 14.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1994; the rate was assumed
to decrease gradually to 6.5% for 2002 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
1 percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1993 by approximately $233 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by approximately $121. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% and 8.5% at December 31, 1993 and
1992, respectively.
NOTE 8 - OTHER INCOME, NET:
Other income (expense) is comprised of the following:
1993 1992 1991
------ ------ ------
Interest income. . . . . . . . . . . $1,975 $2,376 $1,380
Interest expense . . . . . . . . . . (642) (440) (196)
Dividend income. . . . . . . . . . . 1,992 1,624 1,510
Foreign exchange losses. . . . . . . (4) (155) (178)
Royalty income . . . . . . . . . . . 634 289 299
Miscellaneous, net . . . . . . . . . 238 295 124
------ ------ ------
$4,193 $3,989 $2,939
------ ------ ------
------ ------ ------
NOTE 9 - COMMITMENTS:
Future minimum rental commitments under non-cancelable operating leases are as
follows:
Amount
-------
1994. . . . . . . . . . $2,213
1995. . . . . . . . . . 1,996
1996. . . . . . . . . . 153
During 1993, the Company entered into operating leases for certain
manufacturing equipment. These leases expire in 1998 but provide the Company
with the option to terminate the lease in 1996 and to purchase the equipment at
its fair market value.
Rental expense aggregated $1,015, $1,243, and $1,172 in 1993, 1992 and 1991,
respectively.
NOTE 10 - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity of
those instruments.
INVESTMENTS
The fair values of investments are estimated based on quoted market prices.
NOTES PAYABLE AND INDUSTRIAL DEVELOPMENT BONDS
The fair values of the company's notes payable and industrial development
bonds are estimated based on the quoted market prices for the same or similar
issues.
FAIR VALUE
The estimated fair values of the company's financial instruments are as
follows:
1993 1992
-------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ----- -------- -----
Cash and cash equivalents. . . $ 1,986 $ 1,986 $ 995 $ 995
Investments. . . . . . . . . . 54,217 56,327 87,947 89,347
Notes payable and
industrial development
bonds. . . . . . . . . . . . 50,101 50,101 7,500 7,500
14
NOTE 11 - GEOGRAPHIC AREA AND SALES INFORMATION:
Summary of sales, net earnings and assets by geographic area
1993 1992 1991
----------------------------- ----------------------------- --------------------------
Mexico Mexico Mexico
United and Consoli- United and Consoli- United and Consoli-
States Canada dated States Canada dated States Canada dated
-------- -------- -------- -------- -------- -------- -------- -------- --------
Sales to unaffiliated
customers. . . . . . . . . . . . . $234,460 $25,133 $259,593 $225,001 $20,423 $245,424 $188,625 $19,250 $207,875
-------- -------- --------
-------- -------- --------
Sales between geographic areas . . . 2,186 3,219 806 1,649 795 1,546
-------- -------- -------- -------- -------- --------
$236,646 $28,352 $225,807 $22,072 $189,420 $20,796
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net earnings . . . . . . . . . . . . $ 34,144 $ 1,298 $ 35,442 $ 29,478 $ 2,554 $ 32,032 $ 23,722 $ 1,773 $ 25,495
Total assets . . . . . . . . . . . . 288,506 15,434 303,940 211,099 13,371 224,470 171,349 13,078 184,427
Net assets . . . . . . . . . . . . . 199,862 12,481 212,343 171,838 9,866 181,704 145,473 7,286 152,759
Total assets are those assets associated with or used directly in the respective
geographic area, excluding intercompany advances and investments.
MAJOR CUSTOMER
Revenues from a major customer aggregated approximately 13.6% and 12.5% of
total net sales during the year ended December 31, 1993 and 1992.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Tootsie Roll Industries, Inc.
In our opinion, the accompanying consolidated statements of financial
position and the related consolidated statements of earnings and retained
earnings and of cash flows present fairly, in all material respects, the
financial position of Tootsie Roll Industries, Inc. and its subsidiaries at
December 31, 1993 and 1992, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1993,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1, the Company changed its method of accounting for
income taxes and postretirement health care and life insurance benefits in
1991.
Price Waterhouse
Chicago, Illinois
February 17, 1994
15
QUARTERLY FINANCIAL DATA
Tootsie Roll Industries, Inc. and Subsidiaries
(Thousands of dollars except per share data)
1993 First Second Third Fourth Total
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . . . . . . . . . . $50,017 $53,923 $93,239 $62,414 $259,593
Gross margin . . . . . . . . . . . . . . . . . . . . 25,281 27,232 45,318 27,784 125,615
Net earnings . . . . . . . . . . . . . . . . . . . . 6,696 7,345 14,380 7,021 35,442
Net earnings per share . . . . . . . . . . . . . . . .64 .69 1.37 .66 3.36
1992
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . . . . . . . . . . $42,798 $51,494 $86,856 $64,276 $245,424
Gross margin . . . . . . . . . . . . . . . . . . . . 21,691 26,104 41,979 28,527 118,301
Net earnings . . . . . . . . . . . . . . . . . . . . 5,563 6,733 13,076 6,660 32,032
Net earnings per share . . . . . . . . . . . . . . . .53 .64 1.24 .63 3.04
1991
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . . . . . . . . . . $38,405 $43,786 $77,289 $48,395 $207,875
Gross margin . . . . . . . . . . . . . . . . . . . . 19,934 22,346 37,207 21,088 100,585
Earnings before cumulative
effect of accounting changes . . . . . . . . . . . 4,823 5,265 11,335 5,093 26,533
Cumulative effect of accounting changes. . . . . . . (1,038) -- -- -- (1,038)
Net earnings . . . . . . . . . . . . . . . . . . . . 3,785 5,285 11,335 5,090 25,495
Net earnings per share
Before cumulative effect of accounting changes . . .46 .50 1.08 .48 2.52
Cumulative effect of accounting changes. . . . . . (.10) -- -- -- (.10)
Net earnings . . . . . . . . . . . . . . . . . . . .36 .50 1.08 .48 2.42
<FN>
Net earnings per share is based upon average outstanding shares
as adjusted for 3% stock dividends issued during the second
quarter of each year.
1993-1992 QUARTERLY SUMMARY OF TOOTSIE ROLL INDUSTRIES INC. STOCK
STOCK PRICES*
- -------------------------------------------------------------------------------------
1st Qtr. . . . . . . . . 83-3/8 74 81-1/8 70-1/2
2nd Qtr. . . . . . . . . 82-1/2 71-1/8 76-3/4 60
3rd Qtr. . . . . . . . . 74-1/4 85 82-1/8 61
4th Qtr. . . . . . . . . 79-1/4 69-1/4 83-1/2 78
<FN>
*NYSE Closing Quotations.
Estimated Number of shareholders at 12/31/93..... 9,500
DIVIDENDS*
- --------------------------------------------------------------------------------------
1st Qtr. . . . . . . . . $.0728 $.0613
2nd Qtr. . . . . . . . . $.0950 $.0728
3rd Qtr. . . . . . . . . $.0950 $.0728
4th Qtr. . . . . . . . . $.0950 $.0728
<FN>
NOTE: In addition to the above Cash Dividends, a 3% Stock
Dividend was issued on 4/22/93 and 4/24/92.
*Cash Dividends are restated to reflect 3% Stock Dividends.
16
FIVE YEAR SUMMARY OF EARNINGS AND FINANCIAL HIGHLIGHTS
Tootsie Roll Industries, Inc. and Subsidiaries
(See Management's Comments starting on page 5) 1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Sales and Earnings Data
Net Sales . . . . . . . . . . . . . . . . . . . $259,593 $245,424 $207,875 $194,299 $179,294
Gross Margin. . . . . . . . . . . . . . . . . . 125,615 118,301 100,595 91,094 85,295
Interest Expense. . . . . . . . . . . . . . . . 642 440 196 527 1,184
Provision for Income Taxes. . . . . . . . . . . 22,268 19,890 17,641 14,563 12,994
Earnings before cumulative
effect of accounting changes. . . . . . . . . 35,442 32,032 26,533 22,556 20,212
Cumulative effect of accounting changes (1) . . - - (1,038) - -
Net Earnings. . . . . . . . . . . . . . . . . . 35,442 32,032 25,495 22,556 20,212
% of Sales. . . . . . . . . . . . . . . . . . . 13.7% 13.1% 12.3% 11.6% 11.3%
% of Shareholders' Equity . . . . . . . . . . . 16.7% 17.6% 16.7% 17.4% 18.4%
Per Common Share Data (2)
Net Sales . . . . . . . . . . . . . . . . . . . $24.64 $23.30 $19.73 $18.45 $17.02
Earnings before cumulative
effect of accounting changes . . . . . . . . . 3.36 3.04 2.52 2.14 1.92
Cumulative effect of accounting changes (1) . . -- -- (.10) -- --
Net Earnings. . . . . . . . . . . . . . . . . . 3.36 3.04 2.42 2.14 1.92
Shareholders' Equity. . . . . . . . . . . . . . 20.16 17.25 14.50 12.13 10.40
Cash Dividends. . . . . . . . . . . . . . . . . .36 .28 .24 .21 .20
Stock Dividends . . . . . . . . . . . . . . . . 3% 3% 3% 3% 3%
Additional Financial Data
Working Capital. . . . . . . . . . . . . . . . . $61,052 $110,714 $80,569 $55,318 $33,486
Current Ratio. . . . . . . . . . . . . . . . . . 2.2 5.9 4.8 3.5 2.6
Net Cash Provided by
Operating Activities (3). . . . . . . . . . . . 33,363 36,471 36,826 26,685 16,189
Property, Plant and
Equipment Additions . . . . . . . . . . . . . . 27,992 10,956 3,985 5,155 3,114
Net Property, Plant and
Equipment. . . . . . . . . . . . . . . . . . . 86,699 40,257 34,019 32,099 30,907
Total Assets . . . . . . . . . . . . . . . . . . 303,940 224,470 184,427 159,702 136,342
Shareholders' Equity . . . . . . . . . . . . . . 212,343 181,704 152,759 129,645 109,562
Average Shares Outstanding (2) . . . . . . . . . 10,534 10,534 10,534 10,534 10,534
<FN>
(1) Reflects adoption of new accounting standards for income taxes and
postretirement health care and life insurance benefits (see Notes 1 and 7 to
financial statements).
(2) Adjusted for stock dividends.
(3) 1989 has been restated in accordance with SFAS No. 35 "Statement of Cash
Flows."
17
SUBSIDIARIES
Arrendadora Gorvac S.A. de C.V
C.G.C. Corporation
Cambridge Brands, Inc.
Cambridge Mfg., Inc.
Cambridge Services, Inc.
Cella's Confections, Inc.
Charms Company
Charms Marketing Company
Henry Eisen Advertising Agency, Inc.
J.T. Company, Inc.
Tootsie Roll of Canada, Ltd.
The Tootsie Roll Company, Inc.
Tootsie Roll Management, Inc.
Tootsie Ross Mfg., Inc.
Tootsie Rolls--Latin America, Inc.
Tootsie Roll Worldwide Ltd.
The Sweets Mix Company, Inc.
TRI de Latino America
TRI International Co.
TRI-Mass., Inc.
TRI Sales Co.
Tutsi S.A. de C.V.
World Trade & Marketing Ltd.
18